Rollins, Inc. (ROL) Q4 2012 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, thank you for standing by. Welcome to the Rollins Inc. Fourth Quarter 2012 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, January 23, 2013. I would now like to turn the conference over to Marilyn Meek. Please go ahead.

Thank you. By now you should have all received a copy of the press release, however if anyone is missing a copy and then like to receive one, please contact our office at 212-827-3746 and we will send you a release and make sure you are on the company’s distribution list. There will be a replay of the call which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1 (800) 406-7325 with the pass code 4588006. Additionally, the call is being webcast at www.viavid.com and a replay will be available for 90 days. On the line with me today are, Gary Rollins, President and Chief Executive Officer and Harry Cynkus, Senior Vice President, Chief Financial Officer and Treasurer. Management will make some opening remarks and then we’ll open up the line for your questions. Gary, would you like to begin?

Yes. Thank you, Marilyn and good morning. We appreciate all of you us for our fourth quarter and year-end 2012 conference call. Harry will read our forward-looking statement and disclaimer and then we’ll begin.

Our earnings release discusses our business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that have been made on this call excluding historical facts are subject to a number of risks and uncertainties and actual results may differ materially from any statements we make today. Please refer to today’s press release and our SEC filings, including the risk factor section on Form 10-K for the year ended December 31, 2011 for more information in the risk factors that could cause actual results to differ.

Thank you, Harry. I’m extremely pleased to report that our company achieved record revenues and profits for both the fourth quarter and our full year, marking our 15th consecutive year of increasing revenues and operating profits. Revenue for the fourth quarter rose 6% to $306.4 million and net income increased 6.1% to $22.9 million with all of our brands and services contributing to these results. Revenue for the full year was $1.271 billion and net income grew to $111.3 million. EBITDA, exceeded $200 million for the first time in our history coming in at almost $260 million, excuse me, $216 million. Our ability to achieve record results is due to the commitment and effort of our more than 10,000 employees that work every day to achieve improvements in all we do. The progress we made in 2012 reflects the momentum gained in adding new customers while improving our service and retention. For the quarter, we continued to experience strong demand for our services with residential pest control up 8.7%, commercial rose 4.9% and termite revenue grew 3.6%. We’re particularly pleased with the growth that we experienced in each of these service lines. As reported throughout the year, we continued to see a growing interest in our bed bug services. Companywide, this business grew by nearly one-third year-over-year. We’re amazed in how this business has grown over the last four years, on a service that we didn’t even separately track in 2009, to representing over 3% of our revenues, or approximately $45 million. We continued to experience strong commercial demand for bed bug services. However, it’s not just a commercial problem. Homeowners are becoming more exposed and aware of this pest as we saw a tremendous growth in residential bed bug services, which was up approximately 60% this past year. Mosquito, another one of our ancillary services, although are relatively small part of our revenues, is also helping to build our business and our brands. Both of these services provide us the opportunity to gain new customers that potentially can benefit from all of our services. We look forward to these two areas continuing with strong year-over-year growth. To digress for a moment, I want to thank everyone for joining our call an hour earlier than usual. We needed to make this change in order for Harry and me to get to our Annual Companywide Leadership Conference being held here in Atlanta. It kicks off today and will run for the balance of the week. All of our North American top leaders will be in attendance. The theme for this year’s meeting is world-class customer service, raising the bar through leadership. In addition to participation by Rollins’ corporate department heads, region managers and above will have the opportunity to hear from a number of executives from other companies that are recognized for consistently delivering excellent service. We feel that there is much that we can learn from outsiders who like our self are dedicated to providing excellent service. The main goal of this meeting is to further inform an inspired leadership at Rollins to raise the bar in terms of the level of customer service that we deliver every day, everywhere. At our conference, we’ll be building on our companywide customer promise that I discussed last quarter. I believe it bears repeating since this promise contributed greatly to the progress that we made in customer satisfaction and retention last year. Specifically, we promised to provide our customers with a professional specialist who is respectful, delivers effective, responsible treatments, shares information and promptly responds to service requests. This focus has paid great dividends already. Well they say the proof of the pudding is in the eating and improving customer satisfaction is paying off as confirmed by our most recent customer satisfaction surveys. Recent results show an improvement in our net promoter scores of 5 percentage points over our 2011 score, when our customers are asked if they’re extremely likely or very likely to recommend our services. As you would expect we also saw a drop in the percent of dissatisfied customers. Keep in mind that this feedback whoever bad, goes directly back to the branch that services that customer. This element of accountability creates corrective action where needed and also enables our field locations to strive harder to get bragging rights among their peers. Our technological initiatives are continuing to pay a major role in improving both customer and employee satisfaction and retention. Throughout 2012, we launched the number of technological projects to help us accomplish our business strategy. By the way, since 2011, we have implemented 12 major technological initiatives. We completed several this past year and have added some new ones for the new year. To highlight a few, we launched a suite of advanced customer sales, internet and call center software to increase our lead conversion rate. We introduced a new call center platform that now links all Rollins’ call centers together while reducing the time it takes to turn an internet lead into an outbound sales call. We implemented state-of-the-art outbound predictive dialing for calling our web-based leads. This system has improved the sales agents’ productivity and close ratios substantially. The appropriate Rollins pest control brand name now shows up on perspective customer’s caller ID when we return their call. This helps to ensure those interested in our services to pick up the phone. We replaced our satellite based training system with a web-based employee training network that can be utilized by our employees and franchises worldwide. Our automated on-boarding employee process now engages and guides new hires from day one, getting every new employee’s first day experience off to a good start. Well it’s not just the major contributions, those that we tend to talk about, but also smaller ones that are making us a better company and employer. This past year we implemented our wheels fleet management system, which has provided 24/7 vehicle maintenance support. Better pricing on our purchasing of vehicles, improved management tools and proven programs directed to reduce our fleet expense. We entered 2013 with plans to further the advancement of our branch operating system service suite, which we believe will be one of our most beneficial and far reaching initiatives in our history. Eight branches went live last year and we’re off to a good start this year having converted eight additional branches. These will part of a fourth quarter acquisition. We’re particularly pleased with this last effort, as they demonstrated our ability to bring on multiple branches at the same time. We expect to add several more pilot branches in the first quarter and to significantly ramp up the rollout of additional branches during the year. Our goal is to have Orkin 100% completed in 18 months. When this happens, service suite will be in more than 400 branches companywide. We’re fully conscious no matter how good our past performance is, that there are many areas in which we can improve our business and one area that we’ll be focusing on this year is improvement in our procurement practices. We believe that there are significant opportunities in this area. We’re teaming with the Reebus procure-to-pay software which is a best of breed product as well is Metasys Technologies to provide strategic sourcing. We believe that this team approach will help us achieve the highest standard in sourcing results. Our goal is to significantly reduce the cost of everything that we buy and we believe that there is a multimillion dollar opportunity in this regard. We’ll also be taking a look at our commercial service pricing and price increase. You may recall that we worked with the Boston Consulting Group in 2008 on our residential pricing practices. We’ve asked them back to take a look at our commercial business and we’re already encouraged by the preliminary funding. We’re proud that this past year we’re recognized as the largest pest control company in North America, if not the world. Apart from that, we have 57 domestic franchises and 22 international franchises. We’re frankly amazed how many people abroad are familiar with the Orkin brand and want to be affiliated with it. We don’t take any of this for granted however, as I have said many times in the past, we know that we have maintain the trust and loyalty of our customers and our employees every day. These commitments are the strong hold of our business. All of us here at Rollins are extremely excited about our opportunities for the new year as we continue to grow and improve our business for the benefit of our customers, employees and shareholders. Harry?

Thank you, Gary. Good morning. Thank you for joining us on the call. It’s always a pleasure to get another record year in the books. With this call, I think we can officially say 2012 is complete. We should take some time now to bask in the joy for another successful year. But don’t worry, it won’t be a long celebration, actually as long as it takes us to drive from here over to the conference center and make sure our management team is focused on making 2013 an even better year. Let’s talk about the results. It was an interesting quarter with a number of challenges which I will touch on. Revenue was strong and with nearly 80% of our revenue being recurring, bodes well for next year. Today, we reported revenue of $306.4 million representing 6% revenue growth. Net income increased 6.1% to $22.9 million or $0.16 per diluted share compared to $21.6 million or $0.15 per diluted share for the same period in 2011. Year-to-date revenue is $1.271 billion, 5.5% increase. Net income for the full year has increased 10.5% to $111.3 million with EBITDA coming in at nearly $216 million. Let’s talk more specific about revenue. We saw revenue growth across all brands, all service lines and possibly all bug groups, well certainly bed bugs. Our residential pest control continues to shine, growing 8.7% for the quarter and making up almost 41% of our business. That’s a nice part of recurring revenue. We have a substantial increase in customers on our books as of December 31 waiting for their service this year. The fourth quarter is not a big lead quarter, but lead growth is growth. The quarter got off to a great start with a nice warm up double-digit lead growth, but then we hit some rocky times up in the Northeast, one of those challenges I referred to was Hurricane Sandy in October hitting New Jersey, New York, Connecticut. Don’t know what each part played, but when you combine a cooler and stormier December in many parts of the country, the other storm in the halls of congress, our cutback in advertising spend, December experienced the first month of reduced leaves in some time. Fortunately, December is in a big lead month and it looks like leads are coming back in January. Gary has already touched on our improving customer satisfaction scores and for the year they translated into improved retention rates not just for our residential pest control but across all service lines. Being the largest commercial pest control company in the world and with 42% of our revenue being commercial pest control it’s good to see it regaining its momentum. After watching the growth rate wane over the last couple of years we are pleased to see a pickup now for consecutive quarters growing 4.9% this quarter, 5% when excluding fumigations. Our termite and ancillary services grew 3.6% and represents almost 17% of revenue. While seasonally influenced, half of this revenue is recurring in nature, coming from year around monitoring and through annual renewal fees recognized ratably over the course of the year. The fourth quarter ended strong and I have to thank HomeTeam. Their penetration in the new home construction market is paying dividends. Gary has already given you the numbers on bed bugs, but I would like to point out those who might have missed Orkin’s January 15th press release announcing Chicago replaced Cincinnati as our number one bed bug city, Cincinnati falling to fourth. Washington and Richmond moved up a spot to seventh with New York falling a spot to 10. Don’t take much solace if your city loss standing on the list; regardless everyone still had more bed bugs than the year before. Gross margin for the quarter declined 90 basis points to 46.8% for the fourth quarter versus 47.7% in the prior year. There were a number of factors impacting us, some one-offs, some execution, some just the nature of the business. On execution we lost 30 basis points due to productivity. What has been a strong year for adding new customers and resulting techs to handle that business, continued strong as I mentioned through October. When business draws back like it does at this point each year, we just didn’t react as quickly in some areas as we should have. Factoring to hurricane in the quarter and you get the picture. We self-insured for most of our casualty costs, auto, general liability and workers’ compensation have been experiencing higher costs all year but they turned ugly this last quarter. Unfortunately, we lost one of our technicians in a tragic vehicle accident through no fault of his own. This coupled with four other severe claims resulted in over a $3 million increase in our incurred losses. As a result, our insurance reserves had to be adjusted. Like other challenges, with rising costs we’ve faced, we have identified steps, programs and processes to tackle this challenge and improve our performance. We had good experience on termite claims but it wasn’t enough to mitigate the increase in casualty. On a positive note, though it’s still cost as probably incrementally over $0.5 million in the quarter, we experienced first-hand the homebuilder confidence in the market building more single family homes, which is near its seven year high. Since we have owned HomeTeam, this is the first time we saw installs of their tubes-in-the-wall Taexx system actually increase in the fourth quarter. Homebuilders are usually reluctant to start new homes late in the year. Not this year, starts surged and we saw a 55% increase over last year with over 17,000 installations, making it the biggest quarter since we’ve owned HomeTeam. Lastly, some other one-time costs totaling another $0.5 million coming from fees and other costs related to two acquisitions closed on in the quarter, as well as a new five-year revolver. Depreciation and amortization expense for the quarter increased slightly, $132,000 totaling $9.8 million. Depreciation was $3.8 million with capital expenditures for the year totaling $19 million. The larger piece of the depreciation and amortization number is the amortization of acquired customer contracts totaling $6 million for the quarter and $23.4 million for the full year. This represents a significant after-tax charge of $0.10 a share. When we do pest control company acquisitions, there are seldom any significant hard assets on the balance sheet. And as a result most of the valuation end up being classified as intangibles and customer contracts. We currently have $142 million of intangibles from acquisitions on our balance sheet. With current amortization running approximately $23 million a year, we will have a few more years of this expense flowing through the P&L. We see little risk in possible impairment charges. All of the businesses we have acquired have grown as we continue to write down the value of the customer contracts recognized at the time of the acquisition while expensing fully the cost of all new customer acquisitions. Sales, general and administrative expenses increased $4.1 million or 4.4% to 31.9% of revenues decreasing from 32.3% of revenue. The impact of the higher casualty expense as well as tension on SG&A was offset by 60 basis point improvement in admin and sales salaries. In addition, we broken out separately on the P&L, the cost for terminating the Waltham Salary Pension Plan taking a settlement loss which resulted in $1 million charge to the P&L. I’ve learned that the only thing worse in running a pension plan is terminating one. The tax rate for the quarter came in at 34.6% and we were able to utilize some of our state NOLs. The year-to-date provision for income taxes came in at 37.0%. I really don’t see anyone coming to their senses in Washington and we ratably would expect the rate to turn back up next year. We continued to build on our solid foundation. Possessing a strong balance sheet and cash flows, Rollins is financially strong. EBITDA reached $216 million. A five-year $175 million year revolving credit agreement was expiring soon and we renegotiated or negotiated a new four-year agreement that can be extended an additional year to replace it. Unfortunately the easy cheap credit days of 2008 when we entered into our last agreement have ended. However, we don’t feel all that bad about our new $175 million revolver that is priced at LIBOR plus 75 points. With our strong cash flow this year, we continued to reinvest in the business. The number one priority for our cash continues to be reinvesting in the business we know best, pest control and only pest control. We funded our $19 million in capital expenditures and invested $25 million on acquisition this year. In the fourth quarter of this year, effective October 1st, we acquired eight North Florida location from Hulett Environmental Services based in West Palm Beach, Florida and we closed on December 31st, BBB Pest Control that operates in Orange County, California. These two acquisitions will contribute over $12 million in revenues to Rollins Inc. next year. With cash to spare, we returned $80 million to our shareholders through both our stock buyback and dividend programs in 2012. We bought back nearly 800,000 shares of our common stock and have authorization on purchase an additional 5.3 million shares. Included in the dividends paid for the year was a special one-time dividend of $0.12 per share which was paid in December and totaled $17.2 million. Speaking of dividends, I’d be remiss not to mention that yesterday our Board of Directors increased the quarterly dividend 12.5% to $0.09 per share for the quarter. This marks now the 11th consecutive year that the dividend has been increased a minimum of 12%. Lastly, and most importantly before I turn the call back to Gary, let me express our appreciation and thanks to all the Rollins, Orkin, HomeTeam, Western, IFC, Trutech and Crane Associates whose hard work and dedication contributed to these record results. We also thank our customers, suppliers and shareholders for their continued support. With that, I’ll now turn the call back to Gary.

Thank you, Harry. We’re now ready to open the call for any questions that you might have.

Thank you. (Operator Instructions) Our first question is from the line of James Clement with Sidoti.

Looking out over the next of couple of months, Gary, you all benefited from extremely favorable weather conditions and I recall that your termite business was up, I believe, 10.5% in the first quarter of last year. If, would you -- obviously weather is totally unpredictable, but I mean if you were to see a 5% or 6% decline in your termite business just the result of the timing of weather, I mean that wouldn’t be something you would be overly concerned about would it?

No. In my 45 years I’ve never seen of a lead increase like we experienced in first quarter of last year. I mean it was just a perfect phenomenon. We do have some programs that I think will contribute that we didn’t have really in place extensive last year and that is our EDS sales management software that we developed which really enables us to look over really our sales performance, our proposal performance and really gives us quick data and quick insight as to what the salesmen are doing. And we’ve seen the momentum pick up, I think that contributed to our last quarter in the year of termites and that’s just going to continue to pay dividends. If you can identify a salesman in trouble and help him, you avoid the turnover and of course you improve your productivity. So we’re suspecting or expecting that that will help us and we’ve gotten better selling ancillary services like our Dry Zone and some of the other products. So the salesmen are not going to want to take a pay cut, and what we’ve experienced in the past is when leads slow down, they work harder to create them. But to your first question, I certainly even with all that, it’s going to be a tough quarter from a termite sales point of view.

Probably the toughest two quarters, we’ve taken a lot of season -- try to take seasonality out of the business with 42% of the business being commercial that gives us a solid base to build on, but you still have a lot on residential side of the businesses and with termite side of business, its impacted somewhat by weather and we see our revenues decline in the fourth quarter and you wait for it to come back on in Q1. I think last year, to put it in perspective, in Q1, half of our profit is made in March. So you hold on, January and February and you’re hoping for an early spring. The revenue differential between January and March, I think last year was $10 million at the month. So when you add $10 million on to mostly larger costs are in place and fixed, gives you a lot of leverage to the bottom line. So last year it was wonderful, warmest February and March in 117 years, the termite business got moved forward into the first quarter, let’s hope for an early spring again this year.

Okay. But even if you get it you’ll still get termite activity in April, I would imagine right.

They reproduce and swarm and they will be back.

Of course. Can you touch a little bit on the acquisition pipeline?

The last year was an interesting year, similar to what we saw four years ago. When there is concern over capital gains rate, lot of people come to table and they want to price the business. We had, we were successful with two acquisitions in the fourth quarter like I mentioned we’ll add about $12 million in revenues next year. We had a few others that we were hoping to get to the finish line, didn’t quite get there, some, I think sellers remorse. We put in place a program to, I guess, we call it a finders bonus plan for our region managers who get a little more active in bringing forward -- build relationships and bring forward more opportunities to us. So we’re actively but it takes a willing seller to come to the table. It’s the number one priority for our cash, so we’ll keep banging the drums and try to find some good pest control companies to add.

Okay. As always, thank you very much for your time.

Our next question is from the line of Joe Box with KeyBanc Capital Markets.

Just wanted to follow up on the deals, can you maybe talk about the business mix of the companies that you bought? Maybe just a little bit of commentary on the margin profile and if you expect the deals to be accretive.

We always expect the deals to be accretive. It sometimes takes a little while to get out of the chute running. You have some startup costs, conversion costs and what not. The acquisition that came on October 1 was primarily residential business. Trying to think the -- about 60%, 70% was residential, 35% I think its termite. The acquisition we closed 12/31 was little over 50% I think will be commercial and the balance residential with very little termite. We expect that, although from an EBITDA standpoint they’re always accretive. Generate a lot of cash, a lot of times it comes down to how much of the purchase price you have to sign to the intangibles and how much that write-off will be, but we expect those margins in both those acquisitions to come up pretty quickly to what our margins run through the business, probably little better. I think in the Florida acquisition, they were in some markets, they didn’t have a big position in some of their markets which was the same markets we didn’t have a big position in. So by combining the operations of the two, we get a good size presence in a marketplace and reduce some of the brick-and-motor cost. So I would think our Florida acquisition within the year should have above average margins for us. The Florida, not Florida, the California acquisition is in a great market, Orange County, long established 40 plus year company, great customer retention. The average customer, when I was in internal audit, was doing due diligence, I think the average age of the customer that happened to be in their sample that they were looking at was over 10 years. So you love it when you have long lived customers, to make for great recurring revenue and predictability of business.

Joe, none of these acquisitions are identical. Some of them, one of them we really have a lot of the administrative costs that we can take out, because they pretty much have a manual service tracking system. And so we know that we can make a big in-road as far as that’s concerned. Often we look at revenue per vehicle. We can see that some of them have too many vehicles; most of them have not been very aggressive with their pricing. We think that we understand pricing well and depending on the time of the year that you acquire the company, you may or may not be able to initiate a price increase, we certainly don’t do that in the winter time. And so we kind of have a process that we go through when we do our models as to which one of these margins that we think that we can move and as I mentioned earlier, they all vary somewhat.

Sure. Excellent, that’s good color. Maybe changing gears a little bit, could you talk about the commercial environment, one, are you seeing any uptick in terms of services being added by your customers or two, are you starting to see the pricing environment improve from some of your competitors. I guess I’m just trying to understand what the main driver is behind some of the improvement in growth.

I think the biggest driver that you have is the effectiveness of your sales force. And we have this biz -- what was it called…

Bizweek?

Bizweek, thank you Harry. So we’re able to have an application that we can share with the customer to show what’s going on in this kitchen, for instance if it’s a restaurant or loading area and really sit down and customize a presentation for that particular location and that particular type of customer. And we’ve now got it located, rolled out I think in all of the U.S.. Some -- I think Western was the last one to be converted. And so we’re seeing a nice part, one of the big contributors to our good quarter in commercial was the fact that our salesmen are more successful in closing them. So to me, we’ve got a lot of opportunity in improving the number of calls that they make and I think this Bizweek will make them more effective as far as their closure is concerned.

I think we’re learning, we mentioned in Gary’s comments bringing on Boston Consulting Group to work with us on the commercial side. They’re tearing apart all the data and looking for the anomalies, but we’re learning a lot about exactly happened in the field, how they’re pricing, how they should be pricing. So I think that bodes well for us, I think we’ll get smarter on the pricing side and that’ll help us typically our price increase on commercial, well both residential and commercial come June or July. So we don’t see anything other than opportunities in the environment. So right now I think its execution and I think we’ll add, be able to add something on the pricing side, getting smarter on how we go to market.

Perfect, thanks. And I apologize if I didn’t catch this earlier. Harry, can you maybe just sum up what the total cost headwind was in the quarter that might not be recurring going forward?

Well, I think the productivity will change. I mean we’re going to bring that back in line, so I think the 30 basis points we lost there, we’ll probably be a little high in January, February and it’ll come back in line with the business in March. The self-insurance, we took 100 basis points to hit there. We’re projecting that to come back in line, but we need to make sure we have safe drivers and safe work environments. The experience we have this year was very unusually outside the norm for us. So that’s an area we had bringing cost down for seven consecutive years. So the HomeTeam, I think we’re going to continue to see hits on the HomeTeam side because we’re open more and more houses get -- come out of the ground, but that’s a good thing because those 60,000 installations we did this year will be at lot of new customers coming on board next year which offsets some of it. The $0.5 million in the revolver and acquisition costs that’s definitely is one-time as well. So we think our margins will come back to where they were historically and we have opportunities to certainly improve on that.

Okay. And maybe I can ask it a little bit of a different way as well. If you look at incremental operating margins, they’ve averaged about 36% over the last four quarters. Obviously it came in at 4% this quarter, which was down for a number of the reasons that you just alluded to. Do you see incremental maybe snapping back to that more normalized range or do you think that there might be somewhat subdued over the next couple of quarters?

I don’t believe there’ll be subdued with the programs we have in place.

Great. That’s all I have. Thanks guys.

(Operator Instructions) We do have a question from the line of Clint Fendley with Davenport and Company.

Sorry if this has already been asked. I got disconnected a couple of times. So I’m wondering what the longer term implications are for the huge uptick that we saw in the HomeTeam installations? Just based on your pipeline of activity and the current low inventories for housing, what is your outlook for this business this year?

We expect it to continue to grow. I think last quarter, we were projecting and thinking 60,000 installed next year and ended up hitting that this year. Based on contracts and homes and the things in the pipeline, it easily could be 65,000 and if housing doesn’t turn down, could hit 70,000. So we might add additional 5,000, 10,000 more installs next year over this year, but the good news is that higher level of installs will start turning into recurring revenue as those homes are completed, sold and we get to sell that homeowner on activating his pest defense system.

Do you think it’s possible given the installs that we had last year and what you’re expecting in the coming year, could that result in potentially a residential growth rate that could accelerate maybe to a level, say 10% or more as a result of the high level of activity that we’re now seeing?

Well, the HomeTeam is $150 million odd out of our $1.2 billion. So we certainly see their growth accelerating to 9%, can they hit 10% next year? I think they’re sandbagging in their projection. They won’t admit they could do 10% next year. So that will certainly trickle down and affect our overall growth rate, but we need a lot of leads coming in and lot of continued success marketing steps and tricks up their sleeve. So we certainly would like to see that the residential business continue to accelerate.

We know that our model works because prior to the recession, we could get a sense of what happens when these homes are sold and it’s just kind of like finding the pump. I mean the housing starts, it really been kind of dismal, they picked up. They’re running at a good pace now. And ultimately these houses will be sold and they’ll start contributing to the profitability. So I mean I think they were expecting a good year from HomeTeam’s this year.

Last question. Could you guys remind me, I know that shortly after you bought this business that you were very optimistic about expanding your relationships with a lot of other builders, I mean just remind me on where you stand on that today?

Well we’ve added -- since we’ve acquired them, we’ve added Toll Brothers and what was the one on…

They do business with the, I think 20 out of 20 of the top builders in United States today. And have expanded their relationships with and gotten further penetration into those accounts. So they just signed a national agreement, I think we talked that last quarter, quarter before with Lennar that’s going to add several thousand homes next year. They had a wonderful relationship with Semtex, because they were owned by Semtex, but Semtex then got sold, bought by Pulte and we expanded that relationship.

Because Pulte wouldn’t buy from us.

No, it was Pierre Gordon that wasn’t.

One of the large firms wouldn’t buy from when we were, when Semtex owned the company. As soon as Semtex we sold the company, yes, we’ve expanded that relationship. So our people have done well. One thing that should contribute is during this lull, we lowered our prices quite a bit just try to get as much volume as we could to offset our overhead. And as the housing starts to return, then our rates have gone up. Any more questions? Okay well thank you for joining us today. We look forward to the new year.

Excuse me sir. We do actually have a follow up from Joe Box from KeyBanc Capital Markets.

Hey sorry guys, got it in. We noticed that you didn’t put out a buyback press release before the earnings release. And it doesn’t look like you guys bought back much in a way of 4Q. I guess just for our own modeling purposes, where are you guys in the market so far in 1Q and maybe can you give us a sense of what your current share count might be?

Well the current share count outstanding is right around 146 million. We didn’t put out a press release for 4Q because we didn’t have anything to report. We weren’t in the market in the fourth quarter. We’ll let you know what we buy in the first quarter when it’s over. We’ve always been opportunists when it comes to purchasing the shares, so yes we don’t have a budget for the quarter. We have authorization for over 5 million shares and if the market gives us an opportunity to buy the shares and sometimes I think ourselves as specialists in the stock, but if we see a good opportunity in buyback stock, we will.

Right. And that 146 million was that as of December 31st or was that as of some numbers?

That was December 31.

And then maybe just one follow-up on your commentary earlier from leads. So I think you said that leads were actually down in December…

Yes, they were up double-digits in October, November slowed a little, December we actually had a decrease but we had a net increase in the quarter but that was a small increase overall.

And if you have to have a lead decrease that’s the month to have.

Right, right. I think I mean it’s certainly explainable why it would be softer in December and I think you’ve said so far it’s looking better in January. Has it snapped back to double-digit growth or is January just too weak of a lead generation month?

January is a smaller month as well, but January, first week of January was pretty cold, got a little warm, got cold again today, but the leads were up in the 5%, 6% neighborhood, but it’s still…. We’re, I guess, two-thirds through the month, but March makes the quarter and not January.

Right, right. But everything that you’re seeing right now is suggest of a lead growth being strong once we see maybe normalized weather.

We certainly believe so.

Okay, great. Thanks for the color there.

And we have no further questions at this time.

Okay. Well again thanks for joining us. We’re dedicated hard to making 2013 another successful year for the company and with that I guess, Harry, you and I need to go.

Need to go.

Well thanks again for joining us.

I’ll be available for a little while for questions if there is any follow-up questions, but we’ll be heading down to Georgia Teach here shortly. Thank you.

Thank you. Ladies and gentlemen this concludes the Rollins Inc. Fourth Quarter 2012 Earnings Conference Call. I would like to thank you for your participation. You may now disconnect.